Now that the US tax season is well underway with the first due date (without extension of time for filing) less than three weeks away here is a timely reminder about record keeping.

The following guidelines as regards record-keeping dovetail into the statute of limitations – the timeframe that IRS has within which to assess tax

Records need to be kept by US taxpayers for

       a) three years from either:

        – the due date of the return or

        – the date the return was filed or

       b) two years from the date the tax was paid,

whichever of the above is the latest.

Example:

       – the due date of the 2010 return is 18 April 2011. No extension of time for filing is applied for the return.

       – the return is filed on 1 April 2011.

       – there is tax to pay in the 2010 return which is paid 18 May 2011.

Records should be retained until 18 April 2014, since 18 April 2011 is the later of the three dates as per the formula above.

  • If the taxpayer under-reports income in a return then the timeframe is extended to six years.
  • If no return is filed or a fraudulent return is filed there is no limit.
  • IRS advises all sales slips, invoices, receipts, cancelled checks and/or other financial account statements should be retained.
  • Records substantiating the basis in property should be kept for as long as they are material with the statute of limitations running from the year in which the property is sold or otherwise disposed of.
  • Records relating to worthless securities should be kept for seven years.
  • Employers and withholding agents are required to retain records for at least four years after the due date of the tax or the date the tax was paid – whichever is later.